With exactly 2 weeks to the pen ultimate rate decision announcement of the year 2022, market expectations remain skewed towards a tad outcome. The monetary policy committee will commence rate decision deliberations on Monday 15 August through to Wednesday 17 August when Governor Dr. Denny Kalyalya will announce the rate stance in the Bank of Zambia hall. Although consumer price index headlined 9.9%, a 20 point climb from Junes level as food prices scaled higher. This was dubbed by analysts as the end of the easing cycle, a pattern observed over the last 11 months as base effects thickened. Against all odds the copper producer has been somewhat immune to the global inflationary environment ton some extent with a falling trajectory while consumer price index in the west is at 40 year highs north of 9.0% for both the US and United Kingdom sending premiums on guilts and treasuries respectively underwater.
A fuel pump. International crude prices are flirting at highs of $99 per barrel following supply constrains weighed in part by softening demand.
Petroleum price pressures have persisted weighing the manufacturing gauges across Zambia and its peers as input prices widen and selling price pressures swelling. June purchasing managers index (PMI) was in contraction at 49.9, the second consecutive contraction for the Southern African nation. The energy regulator in Zambia ebbed pump prices 13.3% with petrol trading for K23.19 from K26.75 a liter in its July price review.
Interest rate risks trended bearishly in the last three months edging higher 200, 150 and 100 basis points to 22%, 24% and 27% for 3, 5 and 10 year bonds respectively on bailout support delays on account of asset sell off pressure. However the exchange rate has continued on a bullish trajectory to 16.1002 for a unit of dollar, an 11- month low the low supported by strong sentiment as Zambia makes positive strides towards successful debt restructure cusping it closer to an IMF deal.
A copper smelter on the Copperbelt of Africa. Copper has posted a 26% YTD loss following weak growth in China eroding demand.
As bell whether for global growth pulse copper lost 26% value on the London Metal Exchange having taken a negative cue from Chinas 2Q22 weak growth pace that sent recessionary shivers across the world. China has however announced trillion dollar infrastructure spend that has given the red metal a life line in addition to projected demand from electric battery manufacture to support climate risk mitigations. Red metal is trading for $7,806 a metric tone a slight recovery from levels seen earlier in the week.
Deviating to the fiscals supporting the monetary side
In the labyrinth of a debt restructure Zambia is at the cusp of bailout breakthrough with the IMF, a development that is fueling a currency rally. With recent approval of a K22billion (circa $1.2 billion) supplementary budget, the red metal producer will seek to fund supplier and pension arrears through surplus revenue collections and not use the domestic money markets. This will decongest them treasury bill and bond market and allow for liquidity into private sector borrowing to effect growth. The monetary side is said to earn reprieve after $1.2billion projects were cancelled in the quest to tame debt growth and above all currency pressure in subsequent repayments.
Jerome Powell, chairman of the US Fed just hike rates another 75bps for the second time as inflation widened to 9.4%.
Bank of England Governor Andrew Bailey could be hiking rates 50bps the highest in 27 years as inflation spirals out of control .
Weighing both exogenous and endogenous factors energy risks remain prevalent on inflation while sentiment boost will fuel a currency rally that offsets the price pressure and will simultaneously keep interest rates in check. The MPC is likely to keep rates unchanged at 9% to support the economic growth agenda in the interim. Zambia is forecast to experience increased flows in investment actualizing from investment pledges to support key sectors of the economy.
The Kwacha Arbitrageur
